On September 30 2009, the Minister of Energy and Mineral Resources (the MEMR) in Indonesia issued Regulation No. 28 of 2009 regarding Mining Service Business (PerMen 28/2009).
PerMen 28/2009 implements certain provisions of Law No. 4 of 2009 regarding Mineral and Coal Mining (the New Indonesian Mining Law) related to mining service business activities. To an extent, PerMen 28/2009 redefines certain mining service business activities and practices that have been implemented in the Indonesian mining sector, such as:
- mining companies now have to undertake on their own certain coal/mineral extraction and loading activities, which have been traditionally contracted out to mining contractors;
- local and national mining contractors are now given preferential treatment in securing mining service contracts, compared to foreign-owned mining contractors; and
- there are stricter requirements for a mining company using subsidiary/affiliated mining contractors.
Actual mining company activities
PerMen 28/2009 still allows a large number of mining activities to be contracted out to mining contractors.
However, certain mining activities ` namely coal/mineral extraction (which arguably includes blasting activities at the coal/mineral seam) and loading ` will have to be undertaken by mining companies themselves. This has, to an extent, given rise to a number of concerns to both mining companies and mining contractors. For mining companies, the obligation to undertake coal/mineral extraction and loading means that they will have to procure their own mining equipment and make available the related manpower and expertise to undertake those activities. For mining contractors, the obligation for mining companies to undertake their own coal/mineral extraction and loading means that a portion of their revenue will be lost.
A number of alternatives have been considered and discussed by Indonesian mining stakeholders in order to deal with the above-mentioned matters. One of these is to have the mining contractors supply related equipment for coal/mineral extraction and loading activities on a ‘dry-lease’ basis.
Effectively, mining contractors lease out to mining companies the relevant equipment (whether on a fully maintained basis or otherwise) that will be used for coal/mineral extraction and loading activities. Manpower would be excluded from such an arrangement because, if supplied, it would appear in substance that the lease arrangement was no different from an actual mining service contract arrangement ` the latter being prohibited under PerMen 28/2009. The mining companies would have to provide and make available their own manpower to undertake the actual coal/mineral extraction and loading activities.
Clearly, there will be concerns on how to implement the abovementioned separation of mining activities. This is particularly the case with coordination, health and safety and liability issues, which may not be easily defined and need to be appropriately arranged and structured so as to avoid unnecessary interruption to the production of the mines.
Local, national and foreign (other) contractors
The New Indonesian Mining Law provides that local and national mining contractors must use local and national contractors. PerMen 28/2009 provides the following definitions:
- ‘Local contractor’: a service company in the form of an Indonesian legal or non-legal entity, which is established in a certain municipality/regency/province, whose entire capital originates domestically (Indonesia) and has activities only within the municipality/regency/province in which it is established;
- ‘National contractor’: a service company in the form of an Indonesian legal entity, whose entire capital originates domestically (Indonesia) and has activities within or outside the territory of the Republic of Indonesia; and
- ‘Other (foreign) contractor’: an Indonesian legal entity whose capital is partly or entirely owned by foreign parties.
One of the most hotly-debated matters during the preparation of PerMen 28/2009 was how to implement the preferential treatment/right of local and national contractors. Based on PerMen 28/2009, if a mining company wishes to engage ‘other/foreign’ contractors, it will have to initially make a newspaper announcement (related to the mining service contract) and there would have to be no local and/or national contractors who were financially and technically capable of undertaking the work and meeting the requirements set out by the mining company. The overall process of electing foreign contractors (including determination of capability) must be fair, transparent and reasonable.
It is interesting to note that PerMen 28/2009 does not specifically use the term ‘tender’ for the purpose of electing other/foreign contractors. This is unlike in certain PerMen 28/2009 provisions relating to the appointment of subsidiary/affiliated contractors where the term ‘tender’ is used.
If ‘other/foreign’ contractors are appointed, PerMen 28/2009 requires that those contractors subcontract part of the contracted work (from the mining companies) to appropriately competent local contractors. However, it is still unclear what the scope of that subcontracted work should be, given that the requirement is qualified by the need for a competency test. As a comparison, an earlier draft of PerMen 28/2009 required at least 30% of the contract value to be subcontracted, but this requirement was no longer stipulated in the final text of the version of PerMen 28/2009 that was issued. Accordingly, any part of the work scope (even a very small component e.g. subcontracting maintenance work, or the supply of spare parts) would meet the obligations under PerMen 28/2009.
Via ASIA LAW (16 Dec 2009)